What to Watch for in Friday’s Employment Report

The government’s latest snapshot of the U.S. labor market on Friday is expected to show that job creation took a step back in May after a strong April. Economists surveyed by The Wall Street Journal forecast nonfarm payrolls increased by 210,000 last month and the jobless rate rose a tenth of a point to 6.4%. Here’s what to watch in the release at 8:30 a.m. EDT.

Payback for Payback

April payrolls grew by 288,000 according to the Labor Department’s first estimate, the strongest gain in more than two years. At least part of that growth was attributed to hiring delayed during the unusually cold winter in much of the country. For May, economists forecast a slowdown as pent-up demand for labor subsides. A more relevant comparison for May’s figure might be 197,000—the average monthly job growth over the past year. If employment gains stay above that pace, it could suggest the job market remains on an upward trajectory, even if down from last month.

Peak Performance

Employment in the U.S. will have recovered to its previous peak (138.4 million in January 2008) if the economy added at least 113,000 jobs last month. Forgive us if we don’t pop the champagne. It will have taken 51 months since the job recovery began in early 2010 to return to the previous high. That’s more than twice as long as any other recovery since World War II. The prior record was the recovery in the 2000s. “And we called that ‘the jobless recovery,’” said Patrick O’Keefe, director of economic research at the consultancy CohnReznick. (Private-sector payrolls — excluding government jobs – recouped their losses two months ago.)

Pay Check

Average hourly earnings held steady in April from March at $24.31, despite strong hiring that suggested increased demand for labor. From a year earlier, wages were up 1.9%, barely staying ahead of tepid inflation. Wage measures will be closely watched in the coming months. If pay stays flat, that would indicate continued slack in the labor market. But acceleration could point to an inflation pickup. Federal Reserve officials will be keeping a close watch on inflation as they wind down their bond-buying program and contemplate when to raise interest rates.

Working 9-to-5

The number of Americans working full time has accelerated over the past year, jumping by more than 400,000 in April. (Part-time employment declined by 181,000 in April.) If that trend continues, it could be a positive sign for the economy. “It’s not the headline number, but full-time employment that really drives household formation and consumer spending,” said Lance Roberts, chief strategist at STA Wealth Management. Full-time job growth had lagged behind population gains during the economic recovery—until April. Both have advanced 5% since mid-2009. Mr. Roberts said full-time job growth would need to outstrip population gains for the economy to kick into a higher gear.

Unhealthy Trend

So far this year, health-care jobs are growing at a pace of just 16,000 per month. Last year, the sector added an average of 17,000 jobs per month, the weakest gain since 1999. Is that a red flag for the economy? The health-care industry averaged 23,000 new jobs per month from 2002 to 2012. “If one of the steady engines of growth throughout the past decade slows down, where are we going to make it up?” Mr. O’Keefe asked.

The trend also highlights the issue of job quality. During the recovery, employment in low-wage fields, such as food service and retail, have outpaced gains in higher-paying sectors, such as health care, construction and manufacturing.

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